Monday, November 8, 2010

"Dave’s Top 10 Reasons Why QE Won’t Help the Economy"

No Joke.
From InnerWorkings:
10. No-one to whom banks want to lend wants to borrow.

9.  The kind of businesses that create jobs, namely start-ups, need equity rather than debt in any case.

8.  The Fed will flatten the yield curve out to five years, competing against the banks, reducing their profitability and their capacity to lend.

7.  The deflationary tendency in the US, such as it is, is mainly demographic: as the Boomers retire, they sell real assets (the US may have a 40% oversupply of large-lot family homes by 2020), and buy financial assets, just like the Japanese during their great retirement wave of 1990-2000 (which coincided with the lost decade). It has nothing to do with monetary policy which has been extremely lax throughout.

6. If you keep interest rate slow in the advent of an enormous retirement wave, then people will save more and spend less, because they expect to earn less income on their savings.

5. If you increase the inflation rate, prospective retirees will save more and spend less, because they expect to have less future purchasing power. That is the opposite of what the Keynesian short-term model predicts, namely that inflation prompts people to spend money (why keep it in the bank if its value is falling)? That’s the trouble with the Keynesian approach: it’s a blindered, short-term view of things. But some times the long-term, for example demographics and the retirement cycle, affects the short term....MORE
HT: Naked Capitalism